PacWest Bancorp gave back most of an early rally on Monday as the rebound for regional bank stocks appeared to lose some steam.
Shares of PacWest rose more than 3% on Monday, adding to a near 82% pop on Friday. The company on late Friday evening announced a dividend cut to just 1 cent per share from 25 cents per share in the previous quarter. PacWest CEO Paul Taylor reassured investors that the bank's businesses remains "fundamentally sound."
"Given current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements, we view reducing the dividend as a prudent step to accelerate our plans to build capital," Taylor said in a release.
The stock opened up nearly 30%, but the gains faded in morning trading.
Other regional banks also retreated from their highs. Zions Bancorp gained 2.1% and Western Alliance advanced less than 1% after opening sharply higher. The SPDR S&P Regional Banking ETF (KRE) fell by 2% after bouncing 6% on Friday.
"Following Thursday's surge in KRE volume (looked panicky with nearly 120 million shares trading hands), Regionals ended the week on a firm note finally bouncing from a very oversold condition. But we're reminded that max volume is rarely 'the low.' We're inclined to treat this like a bear market rally in banks," Strategas technical strategist Chris Verrone said in a note to clients on Monday.
Worries about regional banks lingered after regulators took possession of First Republic last week, resulting in the third failure of an American bank since the start of March. A rapid increase in interest rates has weighed on banks with long-term bond assets, causing a deposit flight. Institutions with a high proportion of uninsured deposits found themselves particularly vulnerable because customers feared losing savings in a bank run.
PacWest said last Wednesday it was exploring "all options," confirming it was in talks with several possible partners and investors. The California-based bank said it had not experienced "out-of-the-ordinary deposit flows" after First Republic's collapse.
Shares of PacWest are still down more than 40% in May and about 74% for the year. The SPDR Regional Banking ETF is now off by nearly 12% in May and 36% for the year.
The worries have persisted despite comments last week from JPMorgan Chase CEO Jamie Dimon and Federal Reserve Chair Jerome Powell that the first stage of the regional banking crisis was over.
The struggles for regional banks has led some Wall Street pros and former regulators to call for changes to support the sector. The ideas include expanding the scope for deposit insurance or instituting a ban short-selling bank stocks, though regulators have not shown signs that either proposal is close to being implemented.
Correction: PacWest Bancorp led a relief rally in regional banks again on Monday. An earlier version misspelled the name of the bank.